The budding marijuana industry is one of the fastest-growing in the U.S. In 2013, the total revenue of the legal pot industry in the country totaled $1.5 billion. By 2014, revenue jumped to $2.7 billion. It’s expected to reach $3.5 billion this year, and then up to $4.5 billion in 2016.

Many cannabis growers are not selling weed outright, but instead infuse marijuana extracts into edibles such as brownies, or vaporizers. Cannabinoids are also used heavily in the medical sector.

Those aren’t particularly large numbers. By comparison, the beer industry in the U.S. is about $100 billion a year. But the weed industry has a lot more potential for growth. Nearly half of the states in America have already legalized marijuana for medical use. And a handful of them even approved it for recreational use. Colorado pulled in $76 million in marijuana taxes and fees last year. It also experienced a 9 percent drop in property crime. The state of Washington brought in $70 million in tax revenue from $257 million worth of legal marijuana sales. If all 50 U.S. states were to approve the recreational and medical consumption of marijuana, it could become a $35 billion market by 2020, according to GreenWave Advisors, an industry research firm that tracks retail sales.

Since some states in the United States, such as Colorado and Washington, have legalized the use of recreational marijuana in 2012, there has been a great amount of pressure for more states to do the same. Next year voters in at least 7 more stateswill consider the decriminalization of marijuana. Funding for marijuana start-ups now is more abundant compared to a few years ago. Dooma Wendschuh is an entrepreneur who makes distilled marijuana extracts. At an investor summit in Denver earlier this year, Wendschuh says he was “besieged by millions of dollars” worth of unsolicited offers to invest in his company. A quick look at his profit margins will explain why. He produces the extracts for only$2,and sells them for $35. “If you make it, it will sell. It’s unreal,” Wendschuh explains. The industry is slowly losing its stigma and is becoming a more legitimate market for a wider range of investors and financiers.

“If full legalization happens, you’ll see a surge of companies from other industries get involved.”- Marijuana Business Daily

In Canada, a new Liberal government was recently elected into office to run the country. The new government promises to legalize cannabis for recreational use on a federal level. This catalyst should improve the probability of more U.S. states legalizing marijuana.

When it comes to investing in marijuana caution must be exercised. There are currently a few hundred publicly traded cannabis companies in the U.S. and Canada combined. But most of these businesses are nano-cap and micro-cap stocks. This means they have a small market capitalization of usually less than $300 million, and they carry a decent amount of risk. Many trade as penny stocks on the OTC market, which lacks the transparency and regulations of the larger exchanges.

To the best of myknowledgethere aren’t any marijuana ETFs or ETNs on the market right now. But here are some other publicly traded companies in the weed business.

It’s difficult to value marijuana companies because the vast majority of them are simply not making any profits. However, as the cannabis industry matures over time the winners and losers will separate. Make sure you do your due diligence before making an investment in the markets. As the trend toward legalization across North America continues, I’m hoping to see green in the future.

This author is long 300 shares CGC, and does not plan to open any other positions in any stocks mentioned here for at least 72 hours after publication of this article.

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